Shareholders the victims as billionaires’ exemption plays on Boral

The smart money in Boral figures the game is over and the big shareholders are selling out of Ryan Stokes’s plaything. Picture: AAP

If all goes to plan in the next week, Ryan Stokes will gain effective control of Boral with about 30 per cent of the company after declaring his offer unconditional on Tuesday ahead of the formal close of his partial bid on Wednesday next week.

Watching an $8bn, 75-year-old icon change hands without any control premium will again raise the question whether Australia should scrap what is known as the billionaire’s exemption.

Heavy trade in the stock on Monday, at more than four times normal trade, preceded the announcement due ahead of next week’s bid closure.

The facts are nothing short of tragic, including the ill-fated $3.5bn Headwaters acquisition five years ago that was written down by one third last year and approved to satisfy the whims of the previous management.

But the stockmarket creep combined with a parietal bid designed to fail is an insult to long-suffering minority shareholders

The billionaire’s exemption should be scrapped. This is the ability to buy 3 per cent of a company every six months without making a full takeover bid for the stock, even once you have reached the takeover threshold at 20 per cent.

It’s called the billionaire’s exemption because they are the ones with the time and money to exploit it and, being Australia, they tend to get away with it.

The UK abolished the creep rule last century and most other jurisdictions ban it once a shareholder has reached a certain threshold, but Australia lets you keep buying right up to 100 per cent if you so desire.

Once the 20 per cent threshold is reached, any further moves should be by way of a full takeover, not the charade that is happening with Boral now.

Now the Nationals party has settled its leadership issues, just maybe the folk in Canberra could make some decisions in the ­national interest, like banning the billionaire’s exemption from the takeover rules.

Right now the smart money in Boral figures the game is over and the big shareholders including Tanarra and Perpetual are selling out of Ryan Stokes’s little plaything.

If you want to hang around on those rules, it’s your money.

Outgoing chair Kathryn Fagg on Monday made sure her chosen chief executive, Zlatko Todorcevski, and CFO Tino La Spina would get their full entitlements when Stokes moves into formal control.

Perpetual and Tanarra made plenty of noise in September last year when Fagg opened the door to give Stokes his board seat without even some form of stock-buying restriction.

That was another mistake that is playing out today and now, with the better-than-expected $2.9bn sale of the US business minus fly ash, Stokes is looking forward to taking control of a veritable cash box to follow his desires.

Why use your own money when you have someone else’s cash box at your disposal.

Stokes’s criticism of the deal was yet another cynical attempt at talking down the stock price after Fagg to her credit engineered a sale at a great price in an albeit perfect market, with the US building market on the rise again.

The Stokes bid closes on June 30 and, while final decisions are yet to be made, the choice is either to extend again or, knowing what stock is available, just roll the dice to pick up another 6 per cent of the company.

The takeover has featured some of the doyens of Australian takeovers, with Stokes advised by Matthew Grounds wearing his new Barrenjoey clothes, activist investor John Wylie plotting for Tanarra Capital, while defending Boral was one-time Grounds colleague Tony Burgess at Flagstaff, along with Citi and Jarden, and also moving the chess pieces was 10 per cent shareholder Paul Skamvougeras.

The creep rule is one obvious lesson from this sorry saga and good governance is another, with good assets left to the unchecked whims of a strong charismatic chief executive.

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Spanner in works

The Asian Renewable Energy Hub was billed as something that could transform the Pilbara, create thousands of jobs and be a major contributor to global efforts to decarbonise the economy, according to West Australian Regional Development Minister Alannah MacTiernan said.

The project partners including Macquarie Bank, CWP and Vesta have extensive experience developing wind and solar farms globally, and today’s environmental approval is a major step forward.

But that was before federal Environment Minister Susan Ley stepped in raising questions about the project’s impact on wetlands around Port Hedland and on migratory birds.

The wind and solar project, about 200km east of Hedland, was first pitched as exporting power to Asia via an underground cable, but that is before the $50bn venture jumped into green hydrogen and exporting ammonia.

It was just the sort of deal Scott Morrison had talked up and the backers say the Ley intervention is just a minor hiccup that can be overcome. We’ll see.

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CBA’s stock fall

The 5.4 per cent slump in the CBA stock price on Monday after a value-adding insurance deal brings to 8 per cent the fall in two days. Jefferies analyst Brian Johnson downgraded the stock last week on valuation grounds given it was trading at 2.5 times book when the other three lemmings were trading at 1.4 times.

CBA chief executive Matt Comyn is looking to return cash to investors. Picture: Adam Yip

It’s almost time to reinstall the rating knowing CBA will kick off the bank buyback stakes with a return of at least $5.5bn at its August results after selling its general insurance operations to South African-based Hollard for $625m up front. The deal doesn’t include deferred payments that will come in over the next 15 years to help boost its earnings. In all, the deal value is estimated at more than $1bn.

The bank is expected to unveil a $5.5bn buyback at its full-year results that will use a big chunk of its franking credits.

CBA boss Matt Comyn is sitting on about $11bn in surplus capital as of his last stated results with the capital position well in excess of the 10.5 per cent tier one capital ratio.

All the major banks are expected to unveil buybacks in the wake of the economy’s faster than expected recovery and the absence so far of any major bad debts.

The insurance purchase by Hollard boosts its position in the general insurance market behind IAG, Suncorp, QBE and Allianz.

The South Africa-based Hollard has been in Australia since 1999 and founding boss Richard Enthoven had the good sense to hire Paul Fahey from CBA insurance five years ago.

Gross written premiums for the business will be at about $3bn when the deal closes in 12 months, compared with IAG, which had $5.2bn in premiums in 2020 and is the market leader with 28 per cent market share in motor and 26 per cent share in home insurance.

The sale also reflects the lemming-like retreat by the big banks from wealth management, with CBA having also sold 55 per cent of its Colonial asset management division to KKR.

That deal is due to settle in the second half of the year.

NAB has sold its MLC business to IOOF, which also acquired ANZ’s wealth management operations.

“Hollardites”, as they like to be known, work well in partnership as shown by existing relationships with Woolworths among others, so the deal is a good fit for CBA and, after 15 years, the bank can decide whether to continue the ­relationship.